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ST. LOUIS--Federal regulations implementing a provision of the Affordable Care Act creating a 90-day grace period before termination of coverage for enrollees in health-exchange plans effectively shorten the grace period to 30 days in apparent contradiction with the statutory language and unfairly burden providers with the risk of providing uncompensated care, a number of hospital and provider groups told the Centers for Medicare & Medicaid Services in an Aug. 15 letter.

Under a provision of ACA, insurers are required to allow a three-month grace period of nonpayment of premiums before discontinuing coverage for enrollees in exchange plans who qualify for the federal premium tax credits, the letter from the American Hospital Association, the Federation of American Hospitals, and the Association of American Medical Colleges said.

But under final regulations issued in March 2012 by CMS (see previous article) to implement the provision, insurers in health exchanges are required to pay claims arising in the first month only after an enrollee fails to make a required premium payment. The insurers are allowed to “pend” claims during the second and third month, and ultimately deny them, thus giving insurers the power to retroactively terminate coverage for the final two months of the grace period, the letter said.

“It's the insurers who should be in the position of managing risk, not the providers.”

--Herb Kuhn, president of the Missouri Hospital Association

To ensure full compliance with ACA, CMS should revise the regulation to require health plans to provide health insurance coverage for the full three-month grace period, the letter said.

“[W]e strongly urge CMS to revise section 45 C.F.R. 156.270(d) to reflect the ACA-mandated minimum three-month grace period, and require [insurers] to pay for all services rendered during that time period,” the letter said. “If a revised policy adopts the statutory minimum grace period, it must not allow [insurers] to suspend claims. Patients only are protected when the statute is implemented as Congress intended. Without payment for covered services, there is only an illusion of continued coverage during the 90-day grace period, not the actual continued coverage required by law.”

A CMS spokesman declined to comment on the letter.

Latest Salvo

The letter from AHA was just the latest in a growing chorus of complaints from provider groups concerned about the burden of uncompensated care that could arise under the final regulation. Earlier the same week, the Missouri Hospital Association and the Missouri State Medical Association sent a letter to CMS outlining similar concerns.

“Patients only are protected when the statute is implemented as Congress intended.”

--American Hospital Association

The letter from the Missouri provider groups asked CMS to restore an earlier version of the regulation that required insurers to pay all claims arising during the grace period, and to impose more “specific and timely” notification requirements on insurers.

“Physicians, hospitals and other health care providers cannot reasonably be expected to know or predict if an enrollee's premiums are paid or will be paid before the end of the grace period,” the letter said. “And they cannot reasonably be expected to bear the concomitant burden of uncertainty and a potentially significant financial loss. If the current rules cannot be amended or interpreted in a more equitable manner, we fear there will be a widespread reluctance among physicians and other providers to participate in exchange plans. As a result, many patients--especially those in under-served areas--will find it very difficult to find physicians and other providers willing and able to provide their care.”

Risk Management

The letters concern a provision in the final rules governing Qualified Health Plans and Federally-facilitated Exchanges (45 CFR Parts 155, 156, and 157), according to Tom Holloway, a spokesman for the Missouri State Medical Association.

“The original version of the regulation on the 90-day grace period required insurers to pay all claims during the grace period,” Holloway told BNA Aug. 13. “And that was something that made sense to us.”

But the final version was substantially different from the proposed version, requiring insurers to pay “all appropriate claims” for services rendered during the first month of the grace period, and allowing insurers to pend claims for services rendered to the enrollee during the second and third months.

The regulation also required insurers to notify HHS of nonpayment of premiums, and to “notify providers of the possibility of non-payment” for denied claims when an enrollee is in the second and third month of the grace period.

“We were kind of blindsided by this,” Holloway said. “We saw what was in the proposed version, and didn't pay much attention after that. But if the proposed version had read the way the final version does, there would have been a hue and cry.”

The AHA letter said that CMS promulgated the final policy “without any indication of such a policy in the proposed rule.” As a result, providers had “no meaningful opportunity to comment,” it said.

According to Holloway, the size of the risk to providers is “very significant,” especially for small practices. “If you provide 60 days of care to a chronically ill patient, or even to someone in certain acute-care situations, you can run up a lot of costs,” he said. “This is a real issue.”

The ultimate effect, he said, could be to drive doctors out of exchange plans. “It might not have a great impact initially, but once a doctor or practice gets burned, they're going to think twice about signing up the next year,” he said. “And that's going to reduce access to care.”

Herb Kuhn, president of MHA and former deputy administrator of CMS, told BNA Aug. 14 that the providers had a “false sense of security” after seeing the proposed regulation. “We liked what we saw in the proposed rule, and we thought that was the way it was going to go,” he said. “We didn't see the change coming in the final rule.”

Kuhn said the problem with the final rule was the transfer of risk from the insurers to the providers. “Under the final rule, there's a three-month period in which there is a risk that the enrollee will receive care without paying premiums,” he said. “And the rule transfers two-thirds of that risk to the providers. But that is not equitable, and it doesn't make sense in terms of our roles in the system.

“It's the insurers who should be in the position of managing risk, not the providers.”

Change in Regulation

Although providers liked the proposed regulation concerning the grace period, insurers did not. And while provider groups turned their attention to other issues, the insurance industry weighed in during the comment period in an effort to convince CMS to change the regulation so as to reduce their risk.

In a comment letter on the proposed regulation submitted to CMS by America's Health Insurance Plans, a lobbying group for health insurers, AHIP argued that requiring insurers to pay all claims during the grace period would have the effect of raising premiums, and would force premium-paying enrollees to subsidize the coverage of those who failed to pay.

The insurance industry weighed in during the comment period in an effort to convince CMS to change the regulation so as to reduce their risk.

The AHIP argument appears to have won the day, based on the provisions of the final regulation, and the explanation offered by HHS in the Federal Register notice on the final exchange rules. “[W]e are persuaded that the proposed standards should be adjusted in this final rule to decrease the opportunities for risk manipulation, adverse selection, and premium increases,” the notice said (77 Fed. Reg. 18,310-18,475).

The first 30 days after nonpayment of premiums is the period during which an enrollee is most likely to resume payment of premiums, and thus most important to ensure “seamless coverage,” the notice said.

But as the period of nonpayment grows, along with the amount owed by the enrollee, the risk of nonpayment grows as well, the notice said. “To decrease the financial risk to issuers the final rule now permits [insurers] to pend claims in the second and third months,” and ultimately to deny claims, the notice said.

One consideration justifying the change from the proposed regulation is the length of the grace period under ACA, which is “substantially longer than many current grace periods,” and which applies only to recipients of advance payments of the premium tax credits, the notice said. “In light of this fact, a grace period policy that is significantly different from the rest of the market could produce markedly different premiums between the Exchange and non-Exchange markets,” it said.

The notice also pointed to a possible tax consequence for enrollees that would arise under the proposed regulation. Under the tax code, an enrollee would incur a tax penalty for advance payments of the premium tax credit paid for months for which the enrollee failed to pay his or her portion of the premium, it said. The proposed rule would thus expose enrollees to liability for up to three months of advance premium tax credits, while the final rule reduces that liability to one month, it said.

“Given the potential for a large tax liability on the part of enrollees receiving advance premium tax credits that fail to pay their residual premiums to QHP issuers, we believe that a retroactive termination date is appropriate to mitigate excessive individual financial exposure,” it said.

Notification Requirements

Although the explanations offered in the Federal Register rule suggest a concern for the financial interests of the insurers and the enrollees, they do not neglect those of the providers. “We understand that pended claims increase uncertainty for providers and increase the burden of uncompensated care,” it said. The proposed version protected providers, but did not seem to have struck “the right balance” given concerns regarding premium increases and potential tax liability of enrollees, it said.

To address provider concerns, the final rule imposes a requirement that insurers notify providers during the second and third month of an enrollee's grace period about the possibility of denied claims, the notice said. “We believe that there are technology based approaches to provide this notification,” the notice said.

In an April letter to insurers, CMS gave further guidance as to the notification requirements, indicating what information should be given to providers, and reiterating that automated electronic processes may be used to convey the information.

But the guidance remained vague on the time frame in which notification must be given, directing insurers to notify providers “as soon as is practicable.”

“This is wholly inadequate for providers,” said Holloway. “It leaves the issue completely up to the interpretation of the insurers. And if they decide that 'as soon as is practicable’ means six months, then the providers are stuck. We need something much better than that.”

The MSMA-MHA letter requests that any standard be consistent with the current real-time standards for electronic Health Insurance Portability and Accountability Act verification transactions, which generally require health plans to transmit eligibility information within 20 seconds.

Growing Awareness

The letters from AHA and the Missouri groups are signs of a growing awareness among provider groups about the threat that the regulation poses to their members.

The Medical Group Management Association may well have been the first to bring the concerns of providers about the issue to CMS, in a July 3 letter requesting that insurers be required to provide grace-period information to providers no later than the 15th day of the 90-day period, and that insurers be made financially liable if they provide inaccurate information related to the grace period during and eligibility-verification request.

In early August, the California Medical Association sent a letter to CMS arguing that forcing providers to bear the risk of loss in the second and third months of the grace period was in conflict with the intent of Congress in passing ACA. The letter also informed CMS that the provisions of the final rule were in conflict with California state law, and argued that the states were not preempted from requiring insurers to provide coverage through the entire 90-day grace period.

“California is a prominent example of a state that decided to run its own exchange, and they want to make sure that they have the doctors to fill out the exchange.”

--Molly Weedn, California Medical Association

Molly Weedn, a CMA spokeswoman, told BNA Aug. 15 that it was of particular concern to California regulators that the health insurance exchange in California, which will be run by the state, get off to a good start. “California is a prominent example of a state that decided to run its own exchange, and they want to make sure that they have the doctors to fill out the exchange,” Weedn said.

Also likely to send letters to CMS on the issue before the end of August are the Wisconsin Hospital Association and the Virginia Hospital & Healthcare Association, according to spokeswomen from the two groups.

Katharine Webb, senior vice president of VHHA, told BNA Aug. 14 that the final regulation “puts providers in a terrible situation.”

“This is a huge burden on hospitals and providers,” she said. “And it puts them back in the collection business, when the whole premise of ACA, of providing coverage to the uninsured, was supposed to get them out of the collection business.”

VHHA intends to address its concerns to CMS directly, as well as to the Virginia congressional delegation, she said. “This is a regulation that needs a lot of reworking,” she said.

Joanne Alig, a senior vice president of WHA, told BNA that WHA was working with the Wisconsin Medical Society on a joint letter to CMS.

“We hope to get it out within a week,” she said.

Alig said that WHA had been “basically happy” with the original rule, but did submit a comment letter asking for a “small tweak.” But what emerged in the final rule was a concession to the interests of insurers, and of the federal treasury, she said.

“When you look at the final rule, it's pretty clear that it saves on federal spending,” she said. “Because it's not just insurers that are on the hook in the proposed regulation, it's also the federal government, which would continue to pay the subsidized portion of the enrollee's premium.”

And the federal portion “could be a significant part of the premium,” she said.

“I'm not sure what the motivation was for the change in the rule,” she said. “But when you compare the proposed rule to the final rule, it's clear that the federal government saves under the final rule.”

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